You want to build your own home but, like many people, you might be unsure where to start.
As a veteran or active duty service member, your VA benefits keep it simple. They extend beyond traditional purchase loans with options to finance building and affording the home you’ve been imagining.
A VA single close construction loan allows you to build your home using the benefits you’ve earned. Save time and money through a simplified financing process with no down payment needed and a single loan for both the construction and long-term mortgage of your new home.
VA single close construction loans allow eligible veterans and service members to finance the construction of a new primary residence without needing a down payment. With a single close VA construction loan you only go through one mortgage closing for both the construction financing and permanent mortgage instead of separate closings. This streamlined process can save time and money when building your dream home.
In this comprehensive guide, we will explain everything you need to know about VA single close construction loans.
What is a VA Single Close Construction Loan?
A VA single close construction loan combines the construction loan and permanent mortgage into one loan with a single closing. This means you don’t need to get a separate construction loan for the building phase and then a permanent VA mortgage after the home is completed.
With a single closing, you finalize the permanent financing terms upfront before construction starts. The construction draws are disbursed from your total mortgage amount that you already closed on Once building completes, the home transitions into the permanent mortgage seamlessly without an additional closing.
The main benefits of a VA single close construction loan include:
- Only one closing timeline and associated fees
- Potentially lower interest rates by locking in upfront
- Streamlined process from construction to permanent financing
- VA financing benefits like no down payment or PMI
VA single close construction loans need to follow VA guidelines for new construction financing. You must use a VA-approved lender and builder. The home must be your primary residence and not an investment property.
VA Single Close Construction Loan Requirements
To qualify for a VA single close construction loan, you must meet all the standard VA home loan eligibility requirements:
- Be an eligible veteran, service member, or surviving spouse
- Provide a VA Certificate of Eligibility (COE)
- Have a minimum 620 credit score
- Debt-to-income ratio below 50%
- Proof of income and employment history
In addition, VA single close construction loans have a few extra requirements:
- Construction plans approved by VA appraiser
- VA-approved builder who is licensed, bonded, and insured
- Builder must be registered in VA system
- Home must satisfy VA Minimum Property Requirements
The home needs to pass the initial VA appraisal based on the proposed construction plans before you can close on the single close loan.
How Does a VA Single Close Construction Loan Work?
VA single close construction loans follow a streamlined process from start to finish:
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Apply and Get Pre-Approved: Work with a VA lender and submit loan application with your credit/income documentation. Get pre-approved for financing.
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Submit Home Plans: Provide complete construction plans and documents from your VA-accepted builder. Plans must be approved.
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Single Closing: Finalize your permanent VA loan terms, interest rate, fees, etc. at one closing before construction begins.
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Construction Period: Builder completes project in scheduled draws from your loan funds. VA inspects progress.
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Construction Completes: Home finished and converts to permanent VA mortgage. Move in once VA issues final approval!
A VA single close construction loan simplifies the construction loan process. You don’t have to shop around for a takeout lender for permanent financing since it is wrapped up in your initial mortgage. Closing costs may also be lower without dual closings.
VA Single Close Construction Loan Costs
VA single close construction loans have the following costs and fees:
VA Funding Fee: Upfront fee of 1.4% to 2.3% of loan amount based on down payment. Can be financed.
Closing Costs: Application fees, appraisal, credit check, etc. Typically 1% to 5% of loan size. Shop lenders!
Interest: You pay interest on the disbursed amount during construction phase. Rates may be slightly higher than standard loans.
Construction Fees: Builder fees for inspections, draws, etc. Ask lender for estimate.
Origination Fees: Upfront charge from lender to process loan. Varies by lender.
Look at the entire fee estimate when comparing VA single close construction loan offers. Ask lenders if they charge discount points to buy down your rate. While your total closing costs may be higher than a typical mortgage, you can potentially save long-term by locking in a lower rate early.
Tips for Getting a VA Single Close Construction Loan
Follow these tips when applying for and getting a VA single close construction loan:
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Shop multiple VA lenders to compare loan costs and rates
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Ask lenders if they offer VA one-time or single close construction loans
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Look for licensed and certified VA builders familiar with program
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Have detailed construction plans and budget ready
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Get pre-approved first to know your pricing and loan amount
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Be ready for a longer underwriting period around 60 days
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Know the draw request and inspection timelines
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Get VA guidance on minimum property standards for your area
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Understand the permanent VA loan costs and terms you’re committing to
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Be flexible on design or material changes if VA requries updates
Getting approved for a VA single close construction loan takes some extra planning compared to a typical home purchase loan. But the single closing process can make financing new construction more convenient and affordable.
Alternatives to VA Single Close Construction Loans
If you are unable to qualify for a VA single close construction loan, here are a few alternative options to finance building a custom home:
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VA Two-Close Construction Loan – Separate construction loan converts to VA loan after building. Requires two closings.
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Conventional Construction Loans – Financing from private lenders. Typically require 10% to 20% down payment.
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USDA and FHA Construction Loans – May be options if you don’t qualify for VA loan.
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401k/IRA Funds – Can be used to pay cash for land/construction costs. Retirement savings are impacted.
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Home Equity Loan – If you have sufficient equity in an existing home, banks may lend based on this collateral.
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Personal Loan – Higher rates/fees and lower loan amounts but an option for shorter build times.
Be sure to discuss your financial situation with an experienced loan officer to determine the best construction loan path for your needs and budget. VA single close loans offer unique advantages but also have more eligibility requirements than conventional mortgages.
The Bottom Line
VA single close construction loans let eligible service members and veterans finance a custom built home in one streamlined VA loan. While the qualification and documentation process may take longer than a typical mortgage, you benefit from closing on your permanent financing upfront before construction starts. This can potentially save you time and money over a two-step construction loan process.
If you have questions about VA single close construction loans or want to start the application process, be sure to consult an approved VA lender. They can guide you through the steps to successfully utilize your VA home loan benefit to build your dream home.
What is a VA Single Close Construction Loan?
The Veterans Administration single close construction loan is a popular option for veterans or those with other military involvement. It offers financing that is easy to qualify for and an overall process that makes paying for and building your home simpler to manage.
The U.S. Department of Veterans Affairs (VA) insures VA single close construction loans to make financing more attainable to benefit those who have ties to the military.
Because these loans are government-backed by the VA, interest rates are kept competitively low and borrowers aren’t required to make a down payment.
With a VA single close construction loan, you can finance the purchase of your lot, the construction of your new home, and the long-term mortgage that will be needed to afford your home once it’s built.
The streamlined process allows you to close on your home loan once rather than having to secure two or more separate loans for each stage of the process.
You qualify once and have a single appraisal, loan originator, and closing process. This reduces the time it takes to build and move into your new home, protects you from unforeseen circumstances down the road, and saves you from paying double or triple closing costs.
Home construction is complicated and requires many moving parts. Single close construction loans are made to help simplify the process.
How to Get a VA Single Close Construction Loan
If you’d like to see whether you qualify for a VA single close construction loan, connect with us. To get you started, we’ve outlined the steps and qualifications needed to help you understand the process.
By sharing basic information about the home you want to build, we’ll work with you to see if a VA single close construction loan meets your needs and whether you can get pre-approved for the loan.
Next, we’ll begin a more in-depth underwriting process to review your income, credit, ability to repay the loan, and other eligibility requirements. This will include demonstrating proof that you’re eligible for VA benefits, either because you’re a veteran, active member of the armed services, or qualifying spouse.
We’ll also work with you to ensure your builder is registered through the VA site, as well as to determine what the cost and timeline will be to build your home and finance it.
We’re with you through each step, leading to a simple and efficient closing so that you can move forward with building your home.
Once the loan closes, you’ll begin construction on your new home within 30 days of the closing date. Your construction team will provide you with regular updates on the progress of your home. We’ll manage the construction phase, including ordering draw inspections, any state-required surveys and inspections, and VA requirements.
VA One-Time Close :: How To Get A Construction Loan With A VA Loan
FAQ
How does a one-time close VA construction loan work?
What is the minimum FICO score for a VA construction loan?
What is the debt to income ratio for a VA construction loan?
Can a VA loan be used to build a house?
What is a VA one-time close construction loan?
With this option, there is only one underwriting process, one appraisal, one set of closing costs, and a single closing. This is known as a VA one-time close construction loan The combined costs of buying land and building a house on it, after which your VA construction loan can be refinanced to a separate permanent VA mortgage loan.
How does a VA construction loan work?
With a true VA construction loan, Veterans close on the loan before the build begins. The lender then makes draws to a builder to cover the stages of new home construction. The VA requires a final inspection when the home is complete. The original appraiser typically conducts the final inspection whenever possible.
What are the different types of VA construction loans?
There are two types of VA construction loans: the one-time close and the two-time close. As the name implies, the one-time close results in a single loan that covers construction costs and permanent financing.
What is a VA construction to permanent loan?
In many cases, there are separate closings (and associated closing costs) for the VA construction financing and the permanent mortgage. It is also possible for the construction loan and permanent financing are handled with a single loan at closing before construction commences. This is called a one-time close or VA construction to permanent loan.